Look out as fraudsters try to unlock pensions

Pound coins stacking up to depict someone who plans to boost your finances and protect against pension liberation fraud


MoneyPlus Features Team

23rd May 2013 at 11:36am

We’ve all experienced it! You settle down in front of the TV to watch your favourite programme – and the phone rings.  You answer, to be informed that “you have won our prize draw!” or “according to our records you are entitled to £3,000 for mis-sold PPI”.

But rather than feeling euphoric, we typically feel annoyed by the interruption.

Unsolicited calls, e-mails and texts are on the rise.

And pension liberation fraud is the latest assault on our inboxes. The promise is to ‘unlock’ cash from your pension.

What is pension liberation?

Most of us can only access our pension once we reach age 55. There are some exceptions. For example if you are unfortunate enough to suffer a terminal illness.

Yet we are increasingly being tempted with offers of immediate access to our pensions. Your pension is typically transferred to an arrangement which allows access before age 55 or will make a loan to you.

So what’s the catch?

Taking your pension as cash without having to wait until you reach 55 might sound appealing. Too good to be true? Here’s the catch.

The huge tax charges and fees associated with these arrangements could see you receiving just 15% of your pension’s true value!

  • In most cases taking money out your pension before age 55 is an ‘unauthorised payment’. Even if your pension is transferred to a scheme which allows this, you will still face a tax charge. The rate of tax charged is 55% regardless of your normal tax position. And penalties and interest will also be applied if you fail to notify HMRC.
  • There are usually unexpectedly high costs associated with liberating your pension. Fees or commission for arranging the transfer typically range from 10 – 30% of your pension fund.
  • If you take the cash now and spend it, you will need to think about what you are going to live on in retirement. The flat rate state pension will only pay you £144 each week even with a full National Insurance Contribution history. This is less than two thirds of the full-time weekly National Minimum Wage.

Is it legal?

Pension liberation fraud is when you are misled about the consequences of entering into one of these arrangements. It is illegal if you are not fully informed of the tax consequences and fees involved.

What’s being done about it?

This month saw the first action against alleged pension liberation fraud. City of London Police made 5 arrests following a raid on a call centre.

The Pensions Regulator has started an awareness campaign to alert members of the public to the signs of pension liberation fraud and warning of the risks.

And pension providers, such as ourselves, will block transfers where we suspect that pension liberation fraud has occurred.

Protecting yourself

To avoid putting yourself at risk of fraudsters you should always seek advice from an expert before transferring your pension.

Always make sure you know who you are dealing with and never give out your personal information following a cold call or text message.

And remember, next time your phone rings while you are watching TV – if it sounds too good to be true, it probably is!

Share your thoughts

Join the conversation and follow us on twitter @StandardLifeUK and Facebook to share your experiences or tips on pension fraud.